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In Energy War, an Interloper
Raids Georgia and Succeeds

By

Greg Jaffe Staff Reporter of The Wall Street Journal

Updated May 17, 1999 12:01 a.m. ET

Soon after Georgia deregulated its natural-gas market in October,
Scana Corp.
, a 153-year-old South Carolina utility, was curious about how many consumers on the other side of the border were familiar with the Columbia company.

It commissioned a survey, in which more people said they had heard of the fictional Delta Gas Co.

Six months later, Scana has signed up more customers in Georgia than any of the dozen or so other utilities competing in the state's newly open natural-gas market. Scana's market share is even bigger than that of Georgia Natural Gas Services, an affiliate of
Atlanta Gas Light
, the utility that had enjoyed near-monopoly status in the state before deregulation.

"Scana has built a brand from nothing in five months. I don't think anyone thought that could happen," says Dave Altman, a vice president with Southern Co. of Atlanta, one of a handful of utilities operating in the state's regulated electricity market.

Scana's marketing coup is especially remarkable given its less-than-sexy product, natural gas, and its less-than-memorable name. When utilities are deregulated, consumers usually don't jump to a new company. Instead, they tend to yawn and remain with the incumbent. Earlier this year, when California's electricity market was deregulated, a paltry 1.2% of customers chose a new provider. At about the same time in Pennsylvania, 12% of consumers chose a new electric company after deregulation.

In Georgia, an astonishing 55% of consumers have chosen a natural-gas marketer. In about three months, customers who haven't made a choice will be assigned to one of the gas companies competing in the state, according to their market shares. As of mid-April, Scana had racked up about 40% of the market, compared with about 33% for Georgia Natural Gas, the Atlanta Gas Light affiliate.

'A Nerd Engineer'

Scana's successful raid on Georgia's gas market took an expensive and unconventional approach. It was a grass-roots effort headed by an unlikely marketer, Warren Darby, an engineer by training and a 30-year veteran of the utility. "I was a nerd engineer my whole life. I wanted a change," says Mr. Darby, an unfailingly polite man with a heavy southern drawl, who won approval for the program from the utility's top management.

Two years ago, Mr. Darby went outside the utility world to recruit a team of advertising and marketing executives. Together, the group succeeded by breaking one of the cardinal rules of competition in a deregulated environment. Instead of cutting costs to become more competitive with lower prices, Scana spent freely, attracting customers with cash rebates and building an entire retail infrastructure of kiosks and storefronts.

Even as Atlanta Gas Light was closing local offices in Georgia, Mr. Darby was opening them, in many cases hiring the same local managers who had worked for Atlanta Gas. Scana now has offices in six small cities where its rival once had a presence, including Rome, Brunswick and Albany. In larger cities, Scana opened staffed kiosks in 30 Kroger food stores, where customers can pay their bills, sign up for gas service or ask questions.

By year end, Scana says, it expects to be selling home-security systems, appliance warranties and cellular-phone service at most of these retail outlets. Eventually, Scana hopes to sell -- you guessed it -- Internet access and even local and long-distance telephone service.

Though expensive, the local offices gave Scana instant credibility. In his jewelry shop in downtown Atlanta, Marc Griffith has next to his cash register a stack of pamphlets from gas companies that want to sell him residential service. He picked Scana. "I'm not sure if they're the best deal," Mr. Griffith says. "But I feel more comfortable with them because they have a location in the Kroger near my house. I know where they are."

Mr. Darby's team found an especially compelling way to attract customers. They persuaded 175 local charities, schools and churches to write letters to donors, informing them Scana would make a $50 contribution if they signed up with Scana for their gas service. Once the potential customers contacted Scana, the utility gave them the option of keeping the $50 contribution for themselves, in the form of coupons or a credit on their next gas bill. The offer had many takers.

Mr. Darby says he doesn't care who got the money. "With all of those letters that went out, there was an implied endorsement of Scana by the local organizations," he says. "For us, as an unknown, that was invaluable."

As Scana was building momentum, its main rival was stumbling. Atlanta Gas Light adopted a rate structure in November designed to recover some of the costs of maintaining interstate gas lines before losing customers to its affiliate and the other gas marketers. Atlanta Gas hoped it could recover those costs in the early winter, before customers began switching.

As soon as people got their unusually high gas bill in December, they revolted. Most turned to Scana, whose aggressive spending had established it as a bona fide brand. "Our call volume quadrupled overnight," Mr. Darby says.

Atlanta Gas Light responded in a matter of days by dropping its new rate structure. It promised to refund consumers' money, but the damage was done. "There is no question that the problem with the billing hurt us," says Steven J. Gunther, the president of the Atlanta Gas Light affiliate Georgia Natural Gas Services.

Georgia Natural Gas Services wasn't the only company to lose. Many other gas companies had deployed door-to-door salesman. "Based on the way other markets worked, everyone thought door-to-door was going to be a key to success," says Amy Diehl, an associate with Cambridge Energy Associates, a consulting firm.

But the Georgia market, driven by Scana's spending and Atlanta Gas Light's blunder, was moving so quickly that by January the door-to-door salesmen were left in the dust.

During the past two quarters, Mr. Darby has spent more than $18 million to bring in residential customers. The question is whether he can keep them from jumping ship. Other companies already have started promising gas at cheaper rates. "Where do you think that $18 million that Scana spent is going to come from?" says Alan Raymond, president of Shell Energy, a unit of the Shell Oil Co. subsidiary of Royal Dutch/Shell Group. "It's either going to come from the shareholders or the customers."

With about 10% of the market, Shell Energy is billing itself as a low-cost provider. Mr. Raymond is quick to note that many of Kroger's Georgia supermarkets have signed on with Shell as their gas utility, despite the Scana kiosks.

Meanwhile, Mr. Darby is betting the customers he has paid so much to acquire won't go out shopping for natural gas. Indeed, sounding much like an established monopoly, Scana is relying on a certain level of indifference.